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SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA

KWAZULU-NATAL DIVISION, PIETERMARITZBURG

Case no: 9758/2011

In the matter between:

M C M[…] …......................................................First Defendant in Reconvention/Plaintiff

JC M[...] N.O...............................................................Second Defendant in Reconvention

MC M[...] N.O..................................................................Third Defendant in Reconvention

DA Turner N.O..............................................................Fourth Defendant in Reconvention

HR Blake..........................................................................Fifth Defendant in Reconvention

JDG Trading (Pty) Ltd....................................................Sixth Defendant in Reconvention

Blake & Associates Holdings

(Pty) Ltd.....................................................................Seventh Defendant in Reconvention

And

J C M[…].....................................................................Plaintiff in Reconvention/Defendant

Order:

(a) The exception against the defendant’s claim in reconvention is upheld in relation to claim F, on the basis that it lacks averments which are necessary to sustain a cause of action. The contents of paragraph 25 of the claim, together with prayer F, are struck out.

(b) The defendant is granted leave to amend her claim in reconvention within twenty days from the date on which this judgment is delivered.

(c) In all other respects the exceptions are dismissed.

(d) The plaintiff and the trustees are ordered, jointly and severally, to pay the defendant’s costs arising out of the exceptions, save for the hearing on 2 December 2013, in respect of which there will be no order as to costs.

Judgment

Date: 13 February 2014

Ploos van Amstel J

[1] The plaintiff and the defendant are married to each other and wish to be divorced, which appears to be the only matter on which they are agreed. The matter before me concerns a number of exceptions by the plaintiff and the trustees of the family trust against claims made by the defendant in her claim in reconvention.

[2] Mr M[…] instituted the action in October 2011. He claims a decree of divorce, an order that the parties retain joint parental rights and responsibilities with regard to their children, and costs if the matter is defended. In her claim in reconvention Mrs M[…] pleads that the marriage is subject to the accrual system which was established in Chapter 1 of the Matrimonial Property Act 88 of 1984 (the MPA) and seeks an order directing her husband to pay her an amount equal to fifty per cent of the amount by which the accrual of his estate exceeds that of her estate. The main issue which was argued before me was whether the assets in a family trust can be taken into account in the determination of the accrual of the husband’s estate, as contemplated in section 4 of the MPA. I propose to deal with this issue first and will then deal with the other grounds on which the exceptions are based.

[3] Section 3(1) of the MPA provides that at the dissolution of a marriage subject to the accrual system the spouse whose estate shows a smaller accrual than the estate of the other spouse acquires a claim against the other spouse for an amount equal to half of the difference between the accrual of their respective estates. Section 4(1)(a) provides that the accrual of the estate of a spouse is the amount by which the net value of his estate at the dissolution of his marriage exceeds the net value of his estate at the commencement of that marriage.

[4] The controversy relates to the assets of the M[…] Family Trust. The defendant pleaded that the trust is the alter ego of the plaintiff and that its assets should be deemed to form part of his assets for the purpose of determining the accrual of his estate. She however does not aver that the trust assets are in fact his property or part of his estate, nor does she aver that the trust is not a genuine one.

[5] The averments pleaded by the defendant in support of her claim that the trust assets should be deemed to form part of her husband’s assets for the purpose of determining the accrual of his estate are in summary the following:

(i) He caused the trust to be registered but did not intend it or its assets to be independent or to be controlled by any person other than himself;

(ii) He reserved for himself, in the trust deed, the power to nominate his successor in his will. This did not apply to the other two trustees;

(iii) The trust deed provided for a quorum of two trustees, provided that he was one of them;

(iv) All negotiable instruments, contracts and the like which had to be signed on behalf of the trust had to be signed by him;

(v) The trust deed provided that he had to be the chairman at any trustees’ meeting;

(vi) The most valuable asset of the trust is a 15% shareholding in Blake and Associates Holdings (Pty) Ltd, which is his employer, and the acquisition of that shareholding was directly linked to and dependent upon such employment;

(vii) He exercised de facto control of the trust and its assets;

(viii) From the registration of the trust in 2001 until January 2013 no meeting of the trustees was ever convened and the other two trustees acted solely on his instructions;

(ix) The other trustees did not exercise any control over the assets of the trust;

(x) He did not consult the other trustees in reaching decisions regarding the trust assets and did so, on his own;

(xi) He conducted the affairs of the trust without drawing any distinction between the interests of the trust and his own;

(xii) He exercised full and exclusive control over the assets, management and conduct of the trust;

(xiii) He effected distributions from the funds of the trust without reference to the other trustees and utilised trust funds to meet his maintenance and other personal obligations;

(xiv) He secured the removal of the defendant as a signatory on the trust’s bank account, leaving himself as the sole signatory and operator of the account;

(xv) He concluded an agreement on behalf of the trust with the fifth to the seventh defendants in reconvention, without reference to his wife, the effect of which was to diminish the value of the trust’s shareholding in Blake and Associates Holdings (Pty) Ltd;

(xvi) But for the trust, ownership of the trust’s assets would have vested in him;

(xvii) The trust is his alter ego.

[6] In spite of all this it is not the defendant’s case that the assets ostensibly owned by the trust are in truth the property of the plaintiff, nor is it her case that the trust is a sham. Counsel made this clear during the argument before me, and also in the written heads of argument. Her case is simply that the trust assets must be taken into account in determining the accrual of his estate, because, if I may try to put it in a nutshell, he has the power and the ability to use those assets for his sole benefit.

[7] Counsel for the defendant sought support for this approach in cases where it was held that the assets of a trust must be taken into account when a redistribution order is made in terms of the Divorce Act 70 of 1979 (the Act). Section 7(3) of the Act provides that a court granting a decree of divorce in respect of a marriage out of community of property entered into before the commencement of the MPA, in terms of an ante-nuptial contract by which community of property, community of profit and loss and accrual sharing in any form are excluded, may, on application by one of the parties to that marriage, order that such assets, or such part of the assets, of the other party as the court may deem just be transferred to the first-mentioned party. Subsection (4) provides that an order under subsection (3) shall not be granted unless the court is satisfied that it is equitable and just by reason of the fact that the party in whose favour the order is granted contributed directly or indirectly to the maintenance or increase of the estate of the other party during the subsistence of the marriage, either by the rendering of services, or the saving of expenses which would otherwise have been incurred, or in any other manner. Subsection (5) provides that in the determination of the assets or part of the assets to be transferred as contemplated in subsection (3), the court shall, apart from any direct or indirect contribution made by the party concerned to the maintenance or increase of the estate of the other party as contemplated in subsection (4), also take into account the existing means and obligations of the parties, any donation made by one party to the other during the subsistence of the marriage, any forfeiture order which affects the patrimonial position of the parties and any other factor which should in the opinion of the court be taken into account.

[8] It is plain that the Court has a wide discretion in determining what redistribution order should be made. In Beaumont v Beaumont 1987 (1) SA 967 (AD) at 991 E-H Botha JA said the following:

‘…the feature of overriding importance in the exercise of the Court’s discretion as to what proportion of assets is to be transferred in terms of ss (3) is the Court’s assessment of what would be “just”, having regard to the factors mentioned specifically and to “any other factor which should in the opinion of the Court be taken into account”…The Legislature has seen fit to confer a wide discretion upon the Courts, and the flexibility in the application of ss (3) thus created ought not, in my judgment, to be curtailed by placing judicial glosses on the subsection in the form of guidelines as to the determination of what would be a just redistribution order.’

[9] It is in this context that the cases relied on by counsel for the defendant should be seen.

[10] In Badenhorst v Badenhorst   2006 (2) SA 255 (SCA) the wife sought an order, in terms of section 7(3) of the Divorce Act, that one half of the value of her husband’s estate be transferred to her. She also claimed that the assets of a trust be regarded as assets in her husband’s estate, on the basis that he controlled the trust and that it was in effect his alter ego. Combrinck AJA said the following in para 9 of the judgment:

‘The mere fact that the assets vested in the trustees and did not form part of the respondent’s estate does not per se exclude them from consideration when determining what must be taken into account when making a redistribution order. A trust is administered and controlled by trustees, much as the affairs of a close corporation are controlled by its members and a company by its shareholders. To succeed in a claim that trust assets be included in the estate of one of the parties to a marriage there needs to be evidence that such party controlled the trust and but for the trust would have acquired and owned the assets in his own name.’

[11] The Court found on appeal that the husband had full control of the assets of the trust and used the trust as a vehicle for his business activities. He paid scant regard to the difference between trust assets and his own assets and, but for the trust, ownership in all the assets would have vested in him. The Court concluded that the value of the trust assets had to be added to the value of the husband’s estate in order to determine what a just and equitable redistribution would be, regard being had to the factors referred to in section 7(5) of the Act.

[12] There is however a fundamental difference between a redistribution order in terms of section 7(3) of the Divorce Act and an accrual claim in terms of section 3 of the MPA. In the case of an accrual claim the Court is not required to make an assessment of what it deems to be ‘just’. It is required to determine, on the evidence before it, the amount equal to half of the difference between the accrual of the respective estates of the spouses. It is a factual enquiry. The determination is made in accordance with sections 4 and 5. Section 4(1)(a) provides that the accrual of the estate of a spouse is the amount by which the net value of his estate at the dissolution of his marriage exceeds the net value of his estate at the commencement of that marriage. The remaining subsections of section 4, and section 5, specify matters which must not be taken into account, such as damages other than damages for patrimonial loss, assets which were excluded from the accrual system in terms of the ante-nuptial contract, inheritances, donations between spouses and so forth. Provision is also made for due allowance for any difference which may exist in the value of money at the commencement and dissolution of the marriage.

[13] Badenhorst is therefore no authority for the proposition that in determining an accrual claim the assets of a trust can be taken into account in determining the accrual of the estate of one of the parties.

[14] Counsel for the defendant relied on two passages in Van Greune NO v Van Greune NO 2013 JDR 2366 (GNP) where the plaintiff in a divorce action sought an order declaring that a trust was the alter ego of her husband and that its assets and liabilities were in fact those of her husband and should be regarded as part of the joint estate. Potterill J upheld an exception to this claim, apparently on the basis that a court has limited common law jurisdiction to vary or terminate trusts. He said in para [6] of the judgment:

‘The court can thus not in divorce proceedings declare that the trust assets and liabilities no longer belong to the trust. The prayers are thus bad in law and should be struck (sic)’.

With respect to the learned Judge, he seems to have overlooked the fact that he was not asked to declare that the trust assets ‘no longer’ belonged to the trust, but that they in fact belonged to the defendant and not to the trust. Then followed the two passages on which counsel for Mrs M[...] relied before me:

‘ [7] The plaintiff/respondent is still free to argue that the assets in the trust should be seen as the assets of the first defendant and thus fall in the estate of the plaintiff and the first defendant’s communal estate.

[8] The plaintiff can thus claim that as part of the division of the estate the trust assets must also be divided, but cannot claim that the court declare that the assets of that trust no longer belong to the trust.’

[15] The learned Judge did not elaborate on this and gave no reasons for what he said in these two paragraphs. I have to say that I am not certain what he said, but if he intended to say that assets which in truth belong to a trust can at the dissolution of the marriage be divided as part of the joint estate, then I have to respectfully disagree.

[16] In BC v CC and Others 2012 (5) SA 562 (ECP) the plaintiff in a divorce action claimed, inter alia, payment of an amount representing one half of the difference in the accrual between her estate and that of her husband, and an order that the value of the assets in a trust be taken into account in determining the value of the accrual of his estate. The trustees of the trust, who were joined as defendants, applied for certain paragraphs to be struck out from the plaintiff’s particulars of claim at the commencement of the trial. They contended that the relief claimed was bad in law and contrary to the provisions of section 12 of the Trust Property Control Act 57 of 1988, that the court was not vested with any discretion to include assets other than the assets of the spouse in determining the accrual of his estate, and that the plaintiff did not seek an order that the trust be set aside or a declarator that the property owned by the trust was in fact owned by her husband. Dambuza J said section 12 provides that the trust property shall not form part of the personal estate of the trustee, except in so far as he, as the beneficiary, is entitled to the trust property. He accepted that consequently the property held by the defendants in their capacities as trustees of the trust did not in law form part of their personal estates. In para [9] of the judgment the learned Judge said the following:

‘As it was pointed out during argument the plaintiff does not seek transfer of the assets held on behalf of the trust to herself. She only seeks that the value thereof be considered in determining accrual. I do not think that this calls for exercise of discretion (sic). The issue simply entails determining from the evidence what assets fall to be considered in determining accrual. Such determination is in my view the same in both the Matrimonial Property Act and the Divorce Act.  It seems to me that generally a benefit enjoyed by a person from an asset adds value to the estate of that person. I am not persuaded therefore that value derived or enjoyed by a spouse from assets of a trust should be ignored or that the court is precluded under section 4 of the Matrimonial Property Act from considering such value on the basis that the intention of establishing the trust is not disputed. This could in my view never have been the intention of the legislature. Such an interpretation of the section would lead to abuse of protection of assets held on behalf of trusts and would open a leeway for spouses, on realizing that the marriages might terminate, to acquire assets “on behalf of the trust” in the knowledge that courts may not enquire into the value enjoyed by them from such assets. I am also not persuaded that in this case the court is precluded from considering the value of such assets because there is no express prayer that the assets be “deemed” to be that of the first defendant. The basis on which the claim is made by the plaintiff is clear from the summons’.

In para [12] the learned Judge said the following:

‘But where the evidence proves true intention to hold assets on behalf of a trust, or the existence of a genuine trust, i.e. no de facto ownership by the spouse or no benefit derived therefrom, I doubt that it would be proper, even under the Divorce Act, to take into account the assets so held in determining redistribution. Similarly, where the evidence proves true ownership of assets on behalf of a trust, it would be improper to take into consideration the value of such assets when considering accrual’.

And in para [13]:

‘But it seems to me that net value of the assets constituting the relevant estate to which the formula in section 4 of the Matrimonial Property Act is to be applied does not necessarily exclude the value of other assets from which the spouses enjoy benefit (sic)’.

The learned Judge then analysed the averments made in the particulars of claim and expressed the view that if those averments were proved at the trial the plaintiff would have succeeded in proving that the assets which were ostensibly owned by the trust, or some of them, were de facto the property of the first defendant, and that their value ought to be taken into account in determining the extent of the accrual of the estate of the first defendant.

[17] There are, with respect, several difficulties with the judgment in BC v CC. It is not correct to say that the determination of what assets fall to be considered in determining the accrual of an estate is ‘the same in both the Matrimonial Property Act and the Divorce Act’. It also does not follow that because a person may in the future receive benefits from a trust, the assets of the trust must be regarded as part of his personal estate at the dissolution of the marriage. In spite of the fact that the plaintiff did not seek an order declaring that the assets of the trust in fact belonged to her husband, and that this formed the main basis of the objection to her claim, the learned Judge held that if she proved the allegations in the particulars of claim she would have succeeded in proving that the assets of the trust were in fact the property of the husband.

[18] The excipients before me accept that if Mrs M[…] pleaded that the assets of the trust are in truth her husband’s property then her claim that those assets must be taken into account in determining the accrual of her estate would have been in order. The issue before me (which was also the issue in BC v CC) is whether assets owned by the trust can be taken into account in determining the accrual of the husband’s estate in the absence of averments that the husband, and not the trust, is in fact the owner of such assets. BC v CC is no authority for that proposition.

[19] The amount of an accrual claim is determined on a factual and mathematical basis and is not a matter of discretion. What a spouse’s estate consists of is a factual enquiry. There is no warrant in the MPA to have regard to assets which do not form part of his estate on the basis that it would be just to do so. Nor is there a legal basis for an order that assets which in fact do not form part of his estate should be deemed to form part of it for purposes of determining the accrual of his estate. I should add that if a trustee behaves improperly with regard to trust assets and deal with them without the authority of the other trustees the law provides a remedy. It is not the case that a husband can with impunity treat trust assets as if they belong to him.

[20] It follows that the averments made in support of claim F in the claim in reconvention do not sustain the claim and the exception should be upheld in this respect.

[21] I should nevertheless deal with three other grounds which were relied on in the exceptions to claim F, because I intend to give the defendant leave to amend her claim in reconvention and these issues may arise again. The first ground was that Mrs M[...] cannot plead on the one hand that the trust is a validly constituted one, that she is a trustee and a beneficiary, and at the same time allege that the trust in truth is merely her husband’s alter ego and that the assets of the trust therefore effectively belong to him and should form part of his accrual calculation. There is not necessarily an inconsistency. Her contention is not that the trust is invalid. She contends that her husband has operated the trust in a manner which shows that it is his alter ego. She does not allege that the assets of the trust effectively belong to her husband, but seeks an order that they be deemed to form part of his estate and that they should form part of his accrual calculation. I have already found that this is not a valid claim. If she had averred that the trust assets in truth belonged to her husband, without challenging the validity of the trust, I do not consider that such a claim would have been excipiable. The second ground is that she is not entitled, as trustee, to make a claim against trust assets, for in doing so she would be breaching her fiduciary duties. The answer to this point is that she is not making a claim against trust assets. Her claim relates to her husband’s estate. In any event, I do not see how a trustee who makes a claim against trust assets thereby breaches her fiduciary duties, provided of course that her claim is a valid one. The third ground of the exception is that evidence to contradict the terms of the trust deed would breach the parol evidence rule. I do not consider that Mrs M[…]’s claim seeks to contradict the terms of the trust deed. As I have said, she does not aver that the trust is a sham. Her claim is based on the manner in which her husband operated and controlled the trust, which may in a particular case justify a finding that assets which had been ‘placed’ in the trust in truth belong to the person controlling the trust.

[22] Two points need to be made before I deal with the other two exceptions. The first is that their basis is that the claims lack averments which are necessary to sustain an action. No notice was given to the effect that the claims are vague and embarrassing, as contemplated in rule 23(1) of the Uniform Rules, and neither of them is based on this ground. The second point is that in an exception the excipient has to show that the pleading is excipiable on every interpretation that can reasonably be attached to it. See First National Bank of South Africa Ltd v Perry NO and Others 2001 (3) SA 960 (SCA) at para 6.

[23] Claim G concerns amounts of money which Mrs M[…] avers she had received from her husband and/or the trust. She seeks a declaratory order that such amounts were donations to her from her husband, alternatively were benefits distributed to her by the trust in her capacity as a beneficiary. The basis of the exception is that her alternative claim cannot be sustained in as much as there is no averment that the trustees acted in accordance with the trust deed, and at least by majority decision. It is further contended that in as much as she pleaded that the trust was merely her husband’s alter ego the averments in support of claim G are contradictory and mutually destructive. There is no merit in this exception. The averments that the payments were made to her by the trust in her capacity as a beneficiary of the trust, as contemplated in clause 22 of the trust deed, are capable of the construction that this was properly done. The averments in support of claim G are not contradictory and mutually destructive as they have been made in the alternative.

[24] Claim H concerns a 15% shareholding which the trust owns in Blake & Associates Holdings (Pty) Ltd and an irrevocable put option in favour of the trust, which is contained in an agreement between it and JDG Trading (Pty) Ltd. Mrs M[...] avers that her husband entered into a written deed of amendment of this agreement, ostensibly on behalf of the trust, the effect of which was to delete the put option. She contends that her husband was not authorised to act on behalf of the trust in concluding the deed of amendment, that it is accordingly invalid and that it should be set aside. The basis of the exception is that the averments that he acted alone, in breach of his fiduciary responsibility as a trustee and in breach of the provisions of the trust deed, are inconsistent with her earlier averments that the trust is his alter ego. There is no merit in this exception either. Mrs M[...] does not contend that the trust is invalid. She is perfectly entitled to challenge the validity of an agreement which her husband purported to conclude on behalf of the trust, on his own and not in accordance with the trust deed.

[25] The exceptions relating to claims G and H can therefore not succeed.

[26] With regard to the question of costs I take into account that only one of the exceptions succeeded. The ground on which it succeeded was raised for the first time in the trustees’ supplementary heads of argument, but the parties all agreed that it should be taken to be part of the exception. The exceptions originally taken in the notices of exceptions all failed. This explains the costs order which I intend to make, and why I think it fair to make no order with regard to the costs of the hearing before me. I refer in the order to Mr M[...] as ‘the plaintiff’, to Mrs M[...] as ‘the defendant’ and to the other excipients as ‘the trustees’.

[27] The order which I make is as follows:

(a) The exception against the defendant’s claim in reconvention is upheld in relation to claim F, on the basis that it lacks averments which are necessary to sustain a cause of action. The contents of paragraph 25 of the claim, together with prayer F, are struck out.

(b) The defendant is granted leave to amend her claim in reconvention within twenty days from the date on which this judgment is delivered.

(c) In all other respects the exceptions are dismissed.

(d) The plaintiff and the trustees are ordered, jointly and severally, to pay the defendant’s costs arising out of the exceptions, save for the hearing on 2 December 2013, in respect of which there will be no order as to costs.

PLOOS VAN AMSTEL J

Appearances:

For the Plaintiff : Adv. A. Stokes SC / L. Combrink

Instructed by: Shepstone & Wylie

Pietermaritzburg

For the Defendant’s : Adv. A. Annandale SC/ W Shapiro

Instructed by : Thomson Wilks Inc.

c/o Austen Smith

Pietermaritzburg

Date of Hearing : 2 December 2013

Date of Judgment : 13 February 2014

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